Oil Reverses Lower Amid Profit-Taking

NEW YORK (DTN) -- New York Mercantile Exchange oil futures reversed lower at the open of regular trade Monday on profit taking after cooler temperatures and light rains enabled Canada to gain control of a major wildfire that disrupted oil sands production over the past week.

Also, the appointment of a new oil minister in Saudi Arabia indicates the world's largest crude oil exporter will likely continue with its current policy of pumping more supply to the market, analysts said.

At last look, NYMEX June West Texas Intermediate crude futures had eased 35cts to $44.31 bbl while July Brent on the ICE futures complex fell 60cts to $44.77 bbl.

In products trade, NYMEX June ULSD futures fell 1.89cts to $1.3184 gallon while the NYMEX June RBOB futures contract dropped 2.85cts to $1.4677 gallon.

Wall Street equities gained on risk-on trade and the dollar moved higher after New York Fed President William Dudley told the New York Times he was optimistic about the nation's economy, saying that he sees enough growth for the Fed to get back to raising its benchmark interest rate.

The Fed raised rates back in December, but has since held off from raising rates further due to soft economic data seen in the first quarter. Dudley's comments were seen as hawkish on monetary policy, which is bearish for oil prices.

In China, a senior government official there raised concerns about China's debt levels, saying the world's second biggest economy can't continue to rely on stimulus spending, a statement considered bearish on the market. Imports data released by China over the weekend were also weak.

Oil supply will continue to drive oil trading today. The market was boosted overnight by supply disruptions in Canada and Nigeria. Canada's most destructive wildfire in a generation shut-in about a quarter of the country's output a week after it started in northern Alberta.

However, a new cold front on Sunday helped firefighters gain control of the fire that reduced almost half of oil town Fort McMurray to ashes, displaced the city's 88,000 residents, and cut by a third oil sands production, said Alberta officials.

It's still not clear when operations will restart at the oil facilities evacuated but the fire is now smaller than it was last week, and it is moving away from the oil facilities. The next few days will see light rains, which will further help contain the fire, officials said.

"Most producers acknowledged their decisions are precautionary measures and that the wildfires were far from operations, but the situation continues to develop," said Barclays Capital. "Absent structural damage to the oil sands facilities, we expect flat Canadian production during 2016, before growth resumes next year."

With total production at 4.4 million bpd, Canada is the world's fifth largest oil producer, with half its supply from the Alberta oil sands, according to the Energy Information Administration. Nearly all of the Canadian oil sands supply goes to the United States, so the outage of the Canadian oil sands is seen as offsetting the continued decline in U.S. production.

The market is also watching Saudi Arabia, the world's largest crude exporter, where a cabinet shake-up over the weekend replaced 80-year old Ali al-Naimi as oil minister by a younger Khalid al-Falih. The move is not expected to alter the country's oil policy, which is overseen by Deputy Crown Prince Mohammed bin Salman.

However, Falih is said to be on board with Prince Mohammed's reform agenda that's considered hawkish and free-market oriented, suggesting they are likely to intervene less in the market to bolster oil prices. Prince Mohammed is leading an effort to reduce the kingdom's dependence on oil, so ahead of OPEC meeting on June 2 analysts speculate he is likely to allow oil output to increase rather than cut supply.

George Orwel can be reached at george.orwel@dtn.com